Skip to content

ACCA Strategic Professional · Strategic Business Reporting (International) · Provisions, contingencies and events after the reporting period

Marlow Group has a year end of 30 June 20X6 and the financial statements were authorised on 10 September 20X6. On 5 August 20X6 the board declared a final dividend of $2 million for the year ended 30 June 20X6. On 20 August 20X6 a fire destroyed a warehouse holding inventory carrying $3 million, uninsured, that was in good condition at 30 June. Which treatment complies with IAS 10?

Neither item is recognised in the 30 June 20X6 statements. A dividend declared after the reporting period is not a liability at that date, and the fire is a new post-period condition. Both are non-adjusting events, so Marlow discloses them, including the fire's nature and estimated financial effect.

  1. ARecognise the dividend as a liability and adjust inventory for the fire loss
  2. BRecognise the dividend as a liability but disclose the fire
  3. CDo not recognise either; disclose the nature and estimated financial effect of the fire, and the dividend declared if materialCorrect
  4. DWrite off the inventory at 30 June but disclose the dividend only

Explanation

Dividends declared after the reporting period do not create an obligation at the reporting date, so no liability is recognised, though disclosure is given. The fire arose after the period on goods that were fine at year end, so it is non-adjusting, with disclosure of nature and estimated financial effect. Adjusting inventory would be wrong.

Did you get it right without looking?

One question tells you little. A timed set on Provisions, contingencies and events after the reporting period shows your real accuracy, how long you take and where you lose marks.

Practise Provisions, contingencies and events after the reporting periodFree diagnostic mock

More Provisions, contingencies and events after the reporting period questions